April 6, 2017 6:47 am JST
BOJ watch

Kuroda eager to revive public hopes for 2% inflation target

Central bank chief takes a more long-term view amid slipping confidence

KOSUKE TAKAMI, Nikkei staff writer

Bank of Japan Gov. Haruhiko Kuroda speaks at a Diet committee meeting on March 22.

TOKYO -- As companies and households lose hope that Japan ever will fully escape the grasp of deflation, Bank of Japan Gov. Haruhiko Kuroda sees public confidence as the key to his elusive 2% inflation goal.

"Gaining the people's confidence is an important prerequisite to carrying out monetary policy," Kuroda said at a welcoming ceremony for new BOJ workers Monday, urging them to listen to what others are trying to say.

Last year, Kuroda told new employees to have their own opinions and to communicate them to those within and outside the bank. This year's remarks signal a shift in perspective, asking new staffers instead to stand in the shoes of those on the receiving end of monetary policy.

The BOJ aims to end deflation in Japan by achieving 2% growth in consumer prices. Success depends partly on confidence among companies and households. But only a few believe that 2% inflation is a possibility.

The inflation outlook among companies, which the BOJ published Tuesday, reflects such bearish attitudes. Business leaders expect annual price growth to hit 0.7% next year, 1% in three years and 1.1% in five years -- all much lower than the BOJ target. When the bank began compiling this figure in March 2014, the five-year outlook stood much higher at 1.7%. Hopes have since faded.

When Kuroda debuted his large-scale easing program after taking the post in 2013, the central bank governor said he would boost inflation expectations. The idea was that companies would invest and households would spend if they thought prices would rise in the future.

But in a September review of the easing program, the BOJ said that a drop in observed price levels, caused by declining crude oil prices and weak demand following a consumption tax hike in 2014, weakened inflation expectations as well.

"A further rise in inflation expectations ... is uncertain and may take time," the report said, signaling a change in the bank's attitude.

The BOJ is waiting for the wind to change, Totan Research President Izuru Kato said. The bank is maneuvering both short- and long-term interest rates so they remain relatively stable, while waiting for the economy to pick up from overseas factors or a weak yen, Kato said.

Japan's monetary policy has only grown more complex as the BOJ adds intricate mechanisms to advance its goals. In a public survey by the bank in December, just 24% of respondents knew the BOJ was conducting quantitative and qualitative easing with yield curve control. For Kuroda, building public confidence in the bank may be a top priority.

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